us internal revenue service: i990t--2001

8/14/2019 US Internal Revenue Service: i990t--2001

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Department of the TreasuryInternal Revenue Service2001

Instructions for Form 990-TExempt Organization Business Income Tax ReturnSection references are to the Internal Revenue Code unless otherwise noted.

The organizations name, address, andContents Page Contents Pageemployer identification number (EIN).General Instructions Codes for Unrelated Business The name and telephone number of anActivity . . . . . . . . . . . . . . . . . . . . . 20Purpose of Form . . . . . . . . . . . . . . . . 2authorized contact person and the hoursWho Must File . . . . . . . . . . . . . . . . . . 2 A Change To Note he or she can be reached.Definitions . . . . . . . . . . . . . . . . . . . . . 2

If an exempt organization, which is The type of tax return and yearsWhen To File . . . . . . . . . . . . . . . . . . . 3

required to file Form 990-T, wants to involved.Where To File . . . . . . . . . . . . . . . . . . 3 allow the IRS to discuss its 2001 Form A detailed description of the problem.Estimated Taxes . . . . . . . . . . . . . . . . 3 990-T with the paid preparer who signed Previous attempts to solve the problemDepository Method of Tax it, check the Yes box in the area where and the office that had been contacted.

Payment . . . . . . . . . . . . . . . . . . . . 3 the officer of the organization signed the A description of the hardship theInterest and Penalties . . . . . . . . . . . . . 4 return. See page 15. organization is facing (if applicable).

The organization may contact aWhich Parts To Complete . . . . . . . . . . 4Taxpayer Advocate by calling a toll-freeConsolidated Returns . . . . . . . . . . . . . 5 Photographs of Missingnumber, 1-877-777-4778. Persons who

Disclosure Statement for Children have access to TTY/TTD equipment mayCorporate Tax Shelters . . . . . . . . . . 5call 1-800-829-4059 and ask for TaxpayerThe Internal Revenue Service is a proudOther Forms You May Need ToAdvocate assistance. If the organizationpartner with the National Center forFile . . . . . . . . . . . . . . . . . . . . . . . . 5prefers, it may call, write, or fax to theMissing and Exploited Children.

Accounting Methods . . . . . . . . . . . . . . 6Taxpayer Advocate office in its area. SeePhotographs of missing children selected

Accounting Period . . . . . . . . . . . . . . . 6 Pub. 1546, The Taxpayer Advocateby the Center may appear in instructionsReporting Form 990-T Service of the IRS, for a list of addresseson pages that would otherwise be blank.

Information on Other Returns . . . . . . 6 and fax numbers.You can help bring these children homeRounding Off to Whole Dollars . . . . . . 6 by looking at the photographs and callingAttachments . . . . . . . . . . . . . . . . . . . 6 1-800-THE-LOST (1-800-843-5678) if you Phone HelpSpecific Instructions recognize a child. If you have questions and/or need helpPeriod Covered . . . . . . . . . . . . . . . . . 7 completing this form, please callName and Address . . . . . . . . . . . . . . 7 Unresolved Tax Issues 1-877-829-5500. This toll-free telephoneBlocks A through J . . . . . . . . . . . . . . . 7 service is available Monday throughIf the organization has attempted to dealPart l Unrelated Trade or Friday from 8:00 a.m. to 9:30 p.m.with an IRS problem unsuccessfully, it

Business Income . . . . . . . . . . . . . . 7 Eastern time.should contact the Taxpayer Advocate.Part llDeductions Not Taken The Taxpayer Advocate independently

represents the organizations interest andElsewhere . . . . . . . . . . . . . . . . . . . 9 How To Get Forms andconcerns within the IRS by protecting thePart IllTax Computation . . . . . . . . 12 Publicationsrights and resolving problems that havePart IVTax and Payments . . . . . . . 13not been fixed through normal channels.Part VStatements Regarding Personal Computer

Certain Activities and Other While Taxpayer Advocates cannotYou can access the IRS Web Site 24

Information . . . . . . . . . . . . . . . . . . 15 change the tax law or make a technicalhours a day, 7 days a week at

tax decision, they can clear up problemsSignature . . . . . . . . . . . . . . . . . . . . 15 www.irs.gov to:that resulted from previous contacts andSchedule ACost of Goods

Download forms, instructions, andensure that the organizations case isSold . . . . . . . . . . . . . . . . . . . . . . . 16 publications.given a complete and impartial review.Schedule CRent Income . . . . . . . . 16 See answers to frequently asked tax

Schedule EUnrelated Debt- The organizations assigned personal questions.advocate will listen to its point of view andFinanced Income . . . . . . . . . . . . . 17 Search publications on-line by topic orwill work with the organization to address

keyword.Schedule F Interest, its concerns. The organization can expect Send us comments or request help byAnnuities, Royalties, andthe advocate to provide: e-mail.Rents From Controlled A fresh look at a new or on-going Sign up to receive local and nationalOrganizations . . . . . . . . . . . . . . . . 18problem. tax news by e-mail.Schedule G Investment Timely acknowledgement. You can also reach us using fileIncome of a Section 501(c)(7), The name and telephone number of the transfer protocol at ftp.irs.gov.

(9), or (17) Organization . . . . . . . . 18individual assigned to its case.

Schedule IExploited Exempt CD-ROM Updates on progress.Activity Income, Other Than

Timeframes for action. Order Pub. 1796, Federal Tax ProductsAdvertising Income . . . . . . . . . . . . 18

Speedy resolution. on CD-ROM, and get:Schedule JAdvertising Income . . . 19 Courteous service. Current year forms, instructions, andSchedule KCompensation of When contacting the Taxpayer publications.

Officers, Directors, and Advocate, the organization should provide Prior year forms, instructions, andTrustees . . . . . . . . . . . . . . . . . . . . 19 the following information: publications.

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Frequently requested forms that may Organizations that are liable for other members, students, patients, officers, orbe filled in electronically, printed out for taxes (such as the section 1291 tax (line employees; orsubmission, and saved for recordkeeping. 35c or 36 of Form 990-T) or recapture 3. That sells items of work-related Internal Revenue Bulletins. taxes (line 42 of Form 990-T)) must file equipment and clothes, and items

Buy the CD-ROM on the Internet at Form 990-T. See pages 13 and 14 of the normally sold through vending machines,www.irs.gov/cdorders from the National instructions for a discussion of these food dispensing facilities or by snackTechnical Information Service (NTIS) for items. If your organization is only required bars, by a local association of employees$21 (no handling fee), or call to file Form 990-T because of these described in section 501(c)(4), organized1-877-CDFORMS (1-877-233-6767) taxes, see Other Taxes under Which before May 27, 1969, if the sales are fortoll-free to buy the CD-ROM for $21 (plus Parts To Complete, on page 4. the convenience of its members at theira $5 handling fee). Fiduciaries for the following trusts that usual place of employment; or

have $1,000 or more of unrelated trade or 4. That sells merchandiseBy Phone and In Person business gross income must file Form substantially all of which was received byYou can order forms and publications 24 990-T: the organization as gifts or contributions;hours a day, 7 days a week, by calling 1. Individual Retirement Accounts or1-800-TAX-FORM (1-800-829-3676). You (IRAs) described under section 408(a), 5. That consists of qualified publiccan also get most forms and publications 2. Simplified Employee Pensions entertainment activities regularly carriedat your local IRS office. (SEPs) described under section on by a section 501(c)(3), (4), or (5)

408(k), organization as one of its substantial3. Simple Retirement AccountsGeneral Instructions exempt purposes (see section 513(d)(2)(SIMPLE) described under section for the meaning of qualified public408(p), entertainment activities); or4. Roth IRAs described under sectionPurpose of Form 6. That consists of qualified408A(b), convention or trade show activitiesUse Form 990-T, Exempt Organization5. Coverdell education savings regularly conducted by a sectionBusiness Income Tax Return, to:accounts (ESAs) described under 501(c)(3), (4), (5), or (6) organization as Report unrelated business income;section 530(b), and one of its substantial exempt purposes Figure and report unrelated business

6. Archer Medical Savings Accounts (see section 513(d)(3) for the meaning ofincome tax liability; (Archer MSAs) described under qualified convention and trade show Report proxy tax liability;section 220(d). activities); or Claim a refund of income tax paid by a

regulated investment company (RIC) or a 7. That furnishes one or moreIRAs and other tax-exemptreal estate investment trust (REIT) on services described in section 501(e)(1)(A)shareholders in a RIC or REITundistributed long-term capital gain. by a hospital to one or more hospitalsfiling Form 990-T only to obtain a

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subject to conditions in section 513(e); orrefund of income tax paid on undistributedWho Must Filelong-term capital gains should complete 8. That consists of qualified pole

Any domestic or foreign organization Form 990-T as explained inIRAs and rentals (as defined in sectionexempt under section 501(a) or section other tax exempt shareholders in a RIC 501(c)(12)(D)), by a mutual or529(a) must file Form 990-T if it has gross or REITunderWhich Parts To cooperative telephone or electricincome from an unrelated trade or Complete, on page 4. company; orbusiness of $1,000 or more. See

9. That includes activities relating toRegulations section 1.6012-2(e). Gross Definitions the distribution of low-cost articles, eachincome is gross receipts minus the cost of

costing $7.60 or less by an organizationUnrelated trade or business income.goods sold. (See Regulations sectiondescribed in section 501 andUnrelated trade or business income is the1.61-3.)contributions to which are deductiblegross income derived from any trade or

Note Disregarded entity. A under section 170(c)(2) or (3) if thebusiness(defined on page 3) that isdisregarded entity, as described in distribution is incidental to the solicitationregularly carried on, and not substantiallyRegulations sections 301.7701-1 through of charitable contributions; orrelated to(defined on page 3), the301.7701-3, is treated as a branch or organizations exempt purpose or function 10. That includes the exchange ordivision of its parent organization for (aside from the organizations need for rental of donor or membership listsFederal tax purposes. Therefore, financial income or funds or the use it makes of the between organizations described ininformation applicable to a disregarded profits). section 501 and contributions to whichentity must be reported as the parent are deductible under section 170(c)(2) or

Generally, for section 501(c)(7), (9), ororganizations financial information. (3); or(17) organizations, unrelated trade or Organizations liable for the proxy tax 11. That consists of bingo games asbusiness income is derived fromon lobbying and political expenditures defined in section 513(f). Generally, anonmembers with certain modificationsmust file Form 990-T. See the line 37 bingo game is not included in any(see section 512(a)(3)(A)).instructions on page 13 for a discussion unrelated trade or business if:

of the proxy tax. If your organization is

For a section 511(a)(2)(B) state a. Wagers are placed, winnersonly required to file Form 990-T because college or university, unrelated trade or determined, and prizes distributed in theof the proxy tax, see Proxy Tax Only business income is derived from activities presence of all persons wagering in thatunder Which Parts To Complete, on not substantially related to exercising or game, andpage 4. performing any purpose or functionb. The game does not compete with Colleges and universities of states and described in section 501(c)(3).

bingo games conducted by for-profitother governmental units, as well asbusinesses in the same jurisdiction, andAn unrelated trade or business doessubsidiary corporations wholly owned by

not include a trade or business: c. The game does not violate state orsuch colleges and universities, are alsolocal law; orsubject to the Form 990-T filing 1. In which substantially all the work is

requirements. However, a section performed for the organization without 12. That consists of conducting any501(c)(1) corporation that is an compensation; or game of chance by a nonprofitinstrumentality of the United States and 2. That is carried on by a section organization in the state of North Dakota,both organized and exempted from tax by 501(c)(3) or 511(a)(2)(B) organization and the conducting of the game does notan Act of Congress does not have to file. mainly for the convenience of its violate any state or local law; or

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13. That consists of soliciting and by the 15th day of the 4th month after Taxable Income for Tax-Exemptreceiving qualified sponsorship payments the end of the tax year. All other Organizations, to figure their estimatedthat are solicited or received after organizations, must file Form 990-T by tax liability. Do not include the proxy taxDecember 31, 1997. Generally, qualified the 15th day of the 5th month after the when computing your estimated taxsponsorship payment means any end of the tax year. If the regular due date liability for 2002.payment to a tax-exempt organization by falls on a Saturday, Sunday, or legal To figure estimated tax, trusts anda person engaged in a trade or business holiday, file on the next business day. If corporations must take the alternativein which there is no arrangement or the return is filed late, see the discussion minimum tax (if applicable) into account.expectation of any substantial return of Interest and Penalties on page 4. See Form 990-W for more information.benefit by that person other than the Extension. Corporations may request an

Depository Method of Taxuse or acknowledgment of that persons automatic 6-month extension of time toname, logo, or product lines in connection Paymentfile Form 990-T by using Form 8868,with the activities of the tax-exempt Application for Extension of Time To File The organization must pay the tax due inorganization. See section 513(i) for more an Exempt Organization Return. full by the due date of the return withoutinformation. extensions. Some organizationsTrusts may request an automatic

(described below) are required to3-month extension of time to file by usingTrade or business. A trade orelectronically deposit all depository taxes,Form 8868. Also, if more than the initialbusiness is any activity carried on for theincluding their unrelated business incomeautomatic 3 months is needed, trusts mayproduction of income from selling goodstax payments.request on a second Form 8868 that anor performing services. An activity does

additional, but not automatic, 3 monthsnot lose its identity as a trade or business Electronic Deposit Requirementmay be granted by the IRS.merely because it is carried on within a The organization must make electronic

larger group of similar activities that may Amended return. To correct errors or deposits of all depository tax (such asor may not be related to the exempt change a previously filed return, write employment tax, excise tax, unrelatedpurpose of the organization. If, however, Amended Return at the top of the return. business income tax) using the Electronican activity carried on for profit is an Also, include a statement that indicates Federal Tax Payment System (EFTPS) inunrelated trade or business, no part of it the line number(s) on the original return 2002 if:can be excluded from this classification that was changed and give the reason for

The total deposits in 2000 were moremerely because it does not result in profit. each change. Generally, the amended than $200,000 orreturn must be filed within 3 years afterNot substantially related to. Not The organization was required to usethe date the original return was due or 3substantially related to means that the EFTPS in 2001.years after the date the organization filedactivity that produces the income does If an organization is required to useit, whichever is later.not contribute importantly to the exempt EFTPS and fails to do so, it may be

purposes of the organization, other than subject to a 10% penalty. If anWhere To Filethe need for funds, etc. Whether an organization is not required to use

To file Form 990-T, mail or deliver it to:activity contributes importantly depends in EFTPS, it may participate voluntarily. ToInternal Revenue Service Centereach case on the facts involved. enroll in or get more information aboutOgden, UT 842010027 EFTPS, call 1-800-555-4477 orFor details, see Pub. 598, Tax on

Private delivery services (PDSs). In 1-800-945-8400. To enrol online, visitUnrelated Business Income of Exemptaddition to the United States mail, exempt www.irs.gov.Organizations.organizations can use certain PDSs Depositing on time. For EFTPSDirectly connected expenses. To be designated by the IRS to meet the timely deposits to be made timely, thedeductible in computing unrelated mailing as timely filing/paying rule for tax organization must initiate the transaction

business taxable income, expenses, returns and payments. The most recent at least 1 business day before the datedepreciation, and similar items must list of designated PDSs was published by the deposit is due.qualify as deductions allowed by section the IRS in October 2001. This list includes162, 167, or other relevant provisions of Deposits With Form 8109only the following:the Code, and must be directly connected

Airborne Express (Airborne): Overnight If the organization does not use EFTPS,with the carrying on of an unrelated trade Air Express Service, Next Afternoon deposit unrelated business income taxor business activity. Service, Second Day Service. payments (and estimated tax payments)

To be directly connectedwith the DHL Worldwide Express (DHL): DHL with Form 8109, Federal Tax Depositcarrying on of a trade or business activity, Same Day Service, DHL USA Coupon. If you do not have a preprintedexpenses, depreciation, and similar items Overnight. Form 8109, you may use Form 8109-B tomust bear a proximate and primary Federal Express (FedEx): FedEx make deposits. You can get this form onlyrelationship to the conduct of the activity. Priority Overnight, FedEx Standard by calling 1-800-829-1040. Be sure toFor example, where facil ities and/or Overnight, FedEx 2 Day. have your EIN ready when you call.personnel are used both to carry on United Parcel Service (UPS): UPS Next

Do not send deposits directly to an IRSexempt activities and to conduct Day Air, UPS Next Day Air Saver, UPS

office; otherwise, the organization mayunrelated trade or business activities, 2nd Day Air, UPS 2nd Day Air A.M., UPS

have to pay a penalty. Mail or deliver theexpenses and similar items attributable to Worldwide Express Plus, and UPScompleted Form 8109 with the payment

such facilities and/or personnel must be Worldwide Express.to an authorized depositary, i.e., a

allocated between the two uses on a The private delivery service can tellcommercial bank or other financial

reasonable basis. The portion of any such you how to get written proof of the mailinginstitution authorized to accept Federal

item allocated to the unrelated trade or date.tax deposits.

business activity must bear a proximateEstimated Taxes Make checks or money orders payableand primary relationship to that businessGenerally, an organization filing Form to the depositary. To help ensure properactivity.990-T must make installment payments of crediting, write the organizations EIN, the

When To File estimated tax if its estimated tax (tax tax period to which the deposit applies,An employees trust defined in section minus allowable credits) is expected to be and Form 990-T on the check or money401(a), an IRA (including SEPs and $500 or more. Both corporate and trust order. Be sure to darken the 990-T boxSIMPLEs), a Roth IRA, a Coverdell ESA, organizations use Form 990-W, on the coupon. Records of these depositsand an Archer MSA must file Form 990-T Estimated Tax on Unrelated Business will be sent to the IRS.

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If the organization prefers, it may mail of the prior years tax. See section 6655 Filers with $10,000 or less on l ine 13,the coupon and payment to: Financial for details and exceptions. column (A) do not have to completeAgent, Federal Tax Deposit Processing, Schedules A through K (however, refer toForm 2220, Underpayment ofP.O. Box 970030, St. Louis, MO 63197. applicable schedules when completingEstimated Tax by Corporations, is usedMake the check or money order payable column (A) and in determining theby corporations and trusts filing Formto Financial Agent. deductible expenses to include on line 13990-T to see if the organization owes a

of column (B)).penalty and to figure the amount of theFor more information on deposits, seepenalty. Generally, the organization is notthe instructions in the coupon booklet Proxy Tax Onlyrequired to file this form because the IRS(Form 8109) and Pub. 583, Starting a

Organizations that are required to filecan figure the amount of any penalty andBusiness and Keeping Records.Form 990-T only because they are liablebill the organization for it. However, even

If the organization owes tax when for the proxy tax on lobbying and politicalif the organization does not owe theit files Form 990-T, do not include expenditures must:penalty, you must complete and attachthe payment with the tax return. Fill-in the heading (the area aboveCAUTION! Form 2220 if either of the following

Instead, mail or deliver the payment with Part I) except items E, H, and I.applies:Form 8109 to an authorized depositary, or Enter the proxy tax on lines 37 and 39. The annualized income or adjusteduse the EFTPS, if applicable. Complete Part IV and the Signatureseasonal installment method is used.

area. The organization is a largeInterest and Penalties Attach a schedule showing the proxyorganization computing its first requiredYour organization may be subject to tax computation.installment based on the prior years tax.interest and penalty charges if it files a If you attach Form 2220, be sure to

Other Taxeslate return or fails to pay tax when due. check the box on line 46, page 2, FormGenerally, the organization is not required Organizations that are required to file990-T, and enter the amount of anyto include the interest and penalty Form 990-T only because they are liablepenalty on this line.charges on Form 990-T because the IRS for recapture taxes, the section 1291 tax,

Trust fund recovery penalty. Thiscan figure the amount and bill the or other items listed in the instructions forpenalty may apply if certain excise,organization for it. line 42 must:income, social security, and Medicare

Fill-in the heading (the area aboveInterest. Interest is charged on taxes not taxes that must be collected or withheld Part I) except items E, H, and I.paid by the due date even if an extension are not paid to the United States

Complete the appropriate lines of Partsof time to file is granted. Interest is also Treasury. These taxes are generally III and IV.charged on penalties imposed for failure reported on Forms 720, 941, 943, or 945. Complete the Signature area.to file, negligence, fraud, gross valuation The trust fund recovery penalty may be Attach all appropriate forms and oroverstatements, and substantial imposed on all persons who are schedules showing the computation of theunderstatements of tax from the due date determined by the IRS to have been applicable tax or taxes.(including extensions) to the date of responsible for collecting, accounting for,

payment. The interest charge is figured at and paying over these taxes, and who Claim For Refundthe underpayment rate determined under acted willfully in not doing so. The penalty

If your only reason for filing a Form 990-Tsection 6621(a)(2). is equal to the unpaid trust fund tax. Seeis to claim a refund, complete the

the instructions for Form 720, Pub. 15Penalty for late filing of return. An following steps:(Circular E), Employers Tax Guide, ororganization that fails to file its return 1. Fill-in the heading (the area abovePub. 51 (Circular A), Agriculturalwhen due (including extensions of time Part I) except items E, H, and I.Employers Tax Guide, for details,for filing) is subject to a penalty of 5% of 2. Enter -0- on line 13, column (A),including the definition of responsiblethe unpaid tax for each month or part of a line 34, and line 43.persons.month the return is late, up to a maximum 3. Enter the credit or payment on theOther penalties. There are alsoof 25% of the unpaid tax. The minimum appropriate line (44a-44f).penalties that can be imposed forpenalty for a return that is more than 60 4. Complete lines 45, 48, and 49 andnegligence, substantial understatement ofdays late is the smaller of the tax due or the Signature area.tax, and fraud. See sections 6662 and$100. The penalty will not be imposed if 5. For claims described below, follow6663.the organization can show that the failure the additional instructions for that claim.

to file on time was due to reasonableWhich Parts To Completecause. Organizations that file late must IRAs and other tax-exempt

attach a statement explaining the If you are filing Form 990-T only shareholders in a RIC or REIT. If youreasonable cause. because of the proxy tax, other are an IRA or other tax-exempt

taxes, or only to claim a refund, goTIP

shareholder that is invested in a RIC or aPenalty for late payment of tax. Thedirectly toProxy Tax Only, Other Taxes, REIT and file Form 990-T only to obtain apenalty for late payment of taxes isorClaim for Refund(see below). refund of income tax paid on undistributedusually 1/2 of 1% of the unpaid tax for each

long-term capital gains, follow steps 1-4month or part of a month the tax is Is Gross Income More Than

above; write Claim for Refund Shown onunpaid. The penalty cannot exceed 25% $10,000? Form 2439 at the top of the Form 990-T;of the unpaid tax. The penalty will not beIf the amount on line 13, column (A), Part and attach to the return Copy B of Formimposed if the organization can show thatI, is more than $10,000, complete all lines 2439, Notice to Shareholder ofthe failure to pay on time was due toand schedules that apply. Undistributed Long-Term Capital Gains.reasonable cause.

Is Gross Income $10,000 or Less?Estimated tax penalty. An organization Composite Form 990-T. If you are athat fails to make estimated tax payments If Part I, line 13, column (A) is $10,000 or trustee of more than one IRA invested inwhen due may be subject to an less, then complete: a RIC, you may be able to file aunderpayment penalty for the period of The heading (the area above Part I). composite Form 990-T to claim a refundunderpayment. Generally, an organization Part I, column (A) lines 1-13. of tax under section 852(b) instead ofis subject to this penalty if its tax liability is Part I, line 13, for columns (B) and (C). filing a separate Form 990-T for each$500 or more and it did not make Part II, lines 29-34. IRA. See Notice 90-18, 1990-1 C.B. 327,estimated tax payments of at least the Parts IIIV. for information on who can file asmaller of it tax liability for 2001, or 100% Signature area. composite return. Complete steps 1-4



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above and follow the additional shelter characteristics. A listed see Trust fund recovery penalty onrequirements of the notice. transaction must be reported if it is page 4.

expected to reduce the taxpayers income Form 945. Use Form 945, Annual ReturnBackup withholding. If your onlytax liability by more than $1 million in a of Withheld Federal Income Tax, to reportreason for filing Form 990-T is to claim asingle tax year or by a total of more than income tax withheld from nonpayrollrefund for backup withholding, complete$2 million for any combination of years. distributions or payments, includingthe parts discussed on page 4 in stepsFor other reportable transactions, the pensions, annuities, IRAs, gambling1-4 and attach a copy of the Form 1099threshold, increases to $5 million for a winnings, and backup withholding.showing the withholding.single tax year or to $10 million for any Form 1098. Use Form 1098, Mortgagecombination of years. Generally, reportingConsolidated Returns Interest Statement, to report the receiptis not required for customary businessThe consolidated return provisions of from any individual of $600 or more oftransactions or transactions with tax

section 1501 do not apply to exempt mortgage interest (including points) in thebenefits that the IRS has no reasonableorganizations, except for organizations course of the organizations trade orbasis to challenge.having title holding companies. If a title business and reimbursements of overpaid

holding corporation described in section See Temporary Regulations section interest.501(c)(2) pays any amount of its net 1.6011-4T for details, including: Information returns. Organizationsincome for a tax year to an organization The definition of a reportable engaged in an unrelated trade orexempt from tax under section 501(a) (or transaction and a listed transaction, business may be required to file anwould, except that the expenses of The relevant tax shelter characteristics information return on Forms 1099-A, B,collecting its income exceeded that for other reportable transactions, DIV, INT, LTC, MISC, MSA, OID, R, andincome), and the corporation and The form and contents of the disclosure S, to report acquisitions or abandonmentsorganization file a consolidated return as statement, and of secured property through foreclosure;described below, then treat the title The filing requirements of the proceeds from broker and barterholding corporation as being organized disclosure statement. exchange transactions; certain dividendsand operated for the same purposes as Also, see Notice 2001-51, 2001-34 and distributions; interest income; certainthe other exempt organization (in addition I.R.B. 190, for certain listed transactions payments made on a per diem basisto the purposes described in section determined to have a tax avoidance under a long-term care insurance

501(c)(2)). purpose and the intended tax benefits contract, and certain accelerated deaththat are subject to disallowance. The benefits; miscellaneous income (e.g.,Two organizations exempt from taxlisted transactions in this notice may be payments to providers of health andunder section 501(a), one a title holdingupdated from time to time when other tax medical services, miscellaneous incomecompany, and the other earning incomeavoidance transactions are identified. payments, and nonemployeefrom the first, will be includible

compensation); distributions from ancorporations for purposes of section Other Forms You May Need ToArcher MSA; original issue discount;1504(a). If the organizations meet the File distributions from retirement ordefinition of an affiliated group, and theprofit-sharing plans, IRAs, SEPs, orother relevant provisions of Chapter 6 of Form W-2, Wage and Tax Statement,SIMPLEs, and insurance contracts; andthe Code, then these organizations may and Form W-3, Transmittal of Wage andproceeds from real estate transactions.file a consolidated return. The parent Tax Statements. Use these forms to

organization must attach Form 851, report wages, tips, other compensation, When filing the above notedAffiliations Schedule, to the consolidated withheld income taxes, and withheld information returns thereturn. For the first year a consolidated social security/Medicare taxes for organization must also fileFormCAUTION

!return is filed, the title holding company employees. 1096, Annual Summary and Transmittal

must attach Form 1122, Authorization of U.S. Information Returns.Form 720. Use Form 720, Quarterlyand Consent of Subsidiary Corporation Form 4466. Use Form 4466, CorporationFederal Excise Tax Return, to reportTo Be Included in a Consolidated Income Application for Quick Refund ofenvironmental excise taxes,Tax Return. See Regulations section Overpayment of Estimated Tax, to applycommunications and air transportation1.1502-100 for more information on for a quick refund, if the organization overtaxes, fuel taxes, luxury tax on passengerconsolidated returns. paid its estimated tax for the year by atvehicles, manufacturers taxes, ship

least 10% of its expected income taxpassenger tax, and certain other exciseDisclosure Statement forliability and at least $500.taxes.Corporate Tax SheltersForm 5498. Use Form 5498, IRA andSeeTrust fund recovery penaltyAn organization is required to disclose its Coverdell ESA Contribution Information,on page 4.participation in certain tax shelters: to report contributions (including rolloverCAUTION

! By attaching a disclosure statement to contributions) to any IRA, including aits income tax return for a reportable Form 926. File Form 926, Return by a SEP, SIMPLE, Roth IRA, Coverdell ESA,transaction for each tax year its income U.S. Transferor of Property to a Foreign Roth conversions, IRA recharacterization,tax liability is affected by its participation Corporation, if the organization is required and the fair market value of the account.in the transaction and

to report certain transfers to foreign Form 5498-MSA. Use Form 5498-MSA, For the first tax year a disclosure corporations under section 6038B. Archer MSA or Medicare+Choice MSAstatement is attached to its tax return byInformation, to report contributions to anForm 940 or Form 940-EZ. Thesending a copy of the disclosureArcher MSA and the fair market value oforganization must file Form 940 or Formstatement to the;an Archer MSA or Medicare+Choice940-EZ, Employerss Annual FederalInternal Revenue ServiceMSA. For more information see theUnemployment (FUTA) Tax Return, if it isLM:PFTG:OTSAgeneral and specific Instructions forliable for FUTA tax.Large & Mid-Size Business DivisionForms 1099, 1098, 5498, and W-2G.1111 Constitution Ave., NW Form 941 or Form 943. The organizationForm 5713. File Form 5713, InternationalWashington, DC 20224. must file Form 941, Employers QuarterlyBoycott Report, if the organization hadDisclosure is required for reportable Federal Tax Return, or Form 943,operations in, or related to, certaintransactions that are: (a) listed Employers Annual Tax Return forboycotting countries.transactions that the IRS has identified as Agricultural Employees, to report income

a tax avoidance transaction and (b) other tax withheld, and employer and employee Form 6198. File Form 6198, At-Riskreportable transactions that have tax social security and Medicare taxes. Also, Limitations, if the organization has a loss



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from an at-risk activity carried on as a of the disposition. For more details, Accounting Periodtrade or business or for the production of including penalties that may apply, see The return must be filed using theincome. Form 8865 and its separate instructions. organizations established annual

accounting period. If the organization hasForm 8275 and 8275-R. Taxpayers and Form 8873, Extraterritorial Incomeno established accounting period, file theincome tax return preparers use Form Exclusion. Use this form to report thereturn on the calendar-year basis.8275, Disclosure Statement, and Form amount of extraterritorial income that is

8275-R, Regulation Disclosure excluded from the organizations grossTo change an accounting period, someStatement, to disclose items or positions income for the tax year.

organizations may make a notation on ataken on a tax return or that are contrarytimely filed Form 990, 990-EZ, 990-PF, orto Treasury regulations (to avoid parts of Accounting Methods 990-T. Others may be required to filethe accuracy-related penalty or certain

Figure the taxable income using theForm 1128, Application To Adopt,preparer penalties). method of accounting regularly used in Change, or Retain a Tax Year. For details

keeping the organizations books andForm 8300. File Form 8300, Report of on which procedure applies to yourrecords. In all cases, the method adoptedCash Payments Over $10,000 Received organization, see Rev. Proc. 85-58,must clearly reflect taxable income. Seein a Trade or Business, if the organization 1985-2 C.B. 740, and the instructions forsection 446. Permissible methods includereceived more than $10,000 in cash or Form 1128.the cash, accrual, or any other methodforeign currency in one transaction or in aauthorized by the Internal Revenue Code. If the organization changes itsseries of related transactions. For moreHowever, organizations with average accounting period, file Form 990-T for theinformation, see Form 8300 andannual gross receipts of more than $5 short period that begins with the first dayRegulations section 1.6050I-1(c).million must generally use the accrual after the end of the old tax year and ends

Form 8697. Use Form 8697, Interest method of accounting for their unrelated on the day before the first day of the newComputation Under the Look-Back trade or business activities. See section tax year. For the short period return,Method for Completed Long-Term 448(c). figure the tax by placing theContracts, to figure the interest due or to organizations taxable income on anbe refunded under the look-back method In all cases the method used must annual basis. For details, see Pub. 538

of section 460(b)(2). The look-back clearly show taxable income. If and section 443.method applies to certain long-term inventories are required, the accrualcontracts that are accounted for under method must be used for sales and Reporting Form 990-T Informationeither the percentage method or the purchases of merchandise. However, if

on Other Returnscompletion-capitalized cost method. the organization is a qualifying taxpayerYour organization may be required to fileunder Rev. Proc. 2001-10, 2001-2 I.R.B.

Form 8865, Return of U.S. Person With an annual information return on:272 (i.e., has average gross receipts ofRespect To Certain Foreign Partnerships.

Form 990, Return of Organization$1 million or less and is not a tax shelter),An organization may have to file Form Exempt From Income Tax;the organization is excepted from the8865 if it: requirements to use an accrual method Form 990-EZ, Short Form Return of

1. Controlled a foreign partnership and may account for inventory items as Organization Exempt From Income Tax;(i.e., owned more than a 50% direct or materials and supplies that are not Form 990-PF, Return of Privateindirect interest in the partnership). incidental. See Rev. Proc. 2001-10 and Foundation or Section 4947(a)(1)

2. Owned at least a 10% direct or Schedule ACost of Goods Sold on Nonexempt Charitable Trust Treated as aindirect interest in a foreign partnership page 16. Private Foundation; ORwhile U.S. persons controlled that

Form 5500, Annual Return/Report ofAn organization changing to thepartnership. Employee Benefit Plan.accrual method because of this provision3. Had an acquisition, disposition, orIf so, include on that information returnmust complete Form 3115, Applicationchange in proportional interest in a

the unrelated business gross income andfor Change in Accounting Method, andforeign partnership that:expenses (but not including the specificattach it to Form 990-T for the year of

a. Increased its direct interest to at deduction claimed on line 33, page 1, orchange. An organization must also showleast 10% or reduced its direct interest of any expense carryovers from prior years)on a statement accompanying Form 3115at least 10% to less than 10%. reported on Form 990-T for the same taxthe period over which the section 481(a)

b. Changed its direct interest by at year.adjustment will be taken into account andleast a 10% interest. the basis for that conclusion. See Rev.

4. Contributed property to a foreign Rounding Off to Whole DollarsProc. 99-49, 1999-2 C.B. 725, as well aspartnership in exchange for a partnership section 448 and Regulations sections The organization may show amounts oninterest if: 1.448-1(g) and 1.448-1(h) for more the return and accompanying schedules

information on figuring this adjustment fora. Immediately after the contribution, as whole-dollars. To do so, drop any2001. Include any positive section 481(a)the corporation owned, directly or amount less than 50 cents and increase

adjustment on line 12, page 1. If theindirectly, at least a 10% interest in the any amount from 50 cents through 99section 481(a) adjustment is a negative,foreign partnership; or cents to the next higher dollar.report it on line 28, page 1.b. The FMV of the property the

corporation contributed to the foreign AttachmentsSee section 460 for rules on long-termpartnership in exchange for a partnership If you need more space on the form orcontracts.interest, when added to other schedules, attach separate sheets. On

contributions of property made to the the attachment, write the correspondingUnless the law specifically permitsforeign partnership during the preceding form or schedule number or letter andotherwise, the organization may change12-month period, exceeds $100,000. follow the same format. Show totals onthe method of accounting used to report

the printed form. Also, include theincome in earlier years (for income as aAlso, the organization may have to fileorganizations name and EIN. Thewhole or for any material item) only byForm 8865 to report certain dispositionsseparate sheets should be the same sizefirst getting consent on Form 3115. Alsoby a foreign partnership of property itas the printed form and should besee Pub. 538, Accounting Periods andpreviously contributed to that foreignattached after the printed form.Methods.partnership if it was a partner at the time



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box and enter a between the first set of 1504) but is not filing a consolidatedparenthesis. return for the tax year with that group.Specific Instructions

2. The corporation is a subsidiary in aFor other organizations exempt underparent-subsidiary controlled groupsection 501, check the box for 501 and(defined in section 1563).enter the section that describes their taxPeriod Covered

exempt status, for example, 501(c)(3).Excluded member. If the corporationFile the 2001 return for calendar year

For tax exempts that do not receive is an excluded member of a controlled2001 or a fiscal year beginning in 2001their exemption under section 501, use group (see section 1563(b)(2)), it is stilland ending 2002. For a fiscal year, fill inthe following guide. considered a member of a controlledthe tax year information at the top of the

group for purposes of Block I.form.If you are a . . . . . . Then check this box

Block J. Enter the name of the personNote: The 2001 Form 990-T may also bewho has the organizations books andIRA, SEP, or SIMPLE 408(e)used if:records and the telephone number at The organization has a tax year of less

Roth IRA 408A which he or she can be reached.than 12 months that begins and ends in2002 and Archer MSA 220(e)

Part IUnrelated Trade or The 2002 Form 990-T is not availableCoverdell ESA 530(a)at the time the organization is required to Business Income

file its return. The organization must show Qualified State Tuition 529(a) Complete column (A), lines 1 through 13.its 2002 tax year on the 2001 Form 990-T ProgramIf the amount on line 13 is $10,000 orand take into account any tax lawless, you may complete only line 13 forchanges that are effective for tax years

Block C. Enter the total of the columns (B) and (C). These filers do notbeginning after December 31, 2001.end-of-year assets from the have to complete Schedules A through Korganizations books of account.Name and Address (however, refer to applicable schedules

when completing column (A)). If theBlock D. An employees trust describedThe name and address on Form 990-Tamount on line 13, column (A), is morein section 401(a) and exempt undershould be the same as the name andthan $10,000, complete all lines and

section 501(a) should enter its own trustaddress shown on the preprinted mailing schedules that apply.identification number in this block.label on Package 990 (or 990-PF). If anyinformation on the label is incorrect or Extraterritorial income. Except asAn IRA trust enters its own EIN in thismissing, cross out any errors, print the otherwise provided in the Internalblock. An IRA trust neveruses a socialcorrect information, and add any missing Revenue Code, gross income includes allsecurity number or the trustees EIN.information. income from whatever source derived.An EIN is obtained by filing Form

Gross income, however, does not includeInclude the suite, room, or other unit SS-4, Application for Employerextraterritorial income that is qualifyingnumber after the street address. If the Identification Number.foreign trade income. Use Form 8873 toPost Office does not deliver mail to the

Block E. Enter the applicable unrelated figure the exclusion. Report it on Formstreet address and the organization has abusiness activity code(s) that specifically 990-T under Other deductions, line 28.P.O. box, show the box number instead ofdescribes the organizations unrelated

the street address. Line 1aGross Receipts orbusiness activity. If a specific activity codeChange of name. If the does not accurately describe the Salesorganization has changed its organizations activities, then choose a Enter the gross income from anyname, it must check the box next general code that best describes itsCAUTION

!unrelated trade or business regularly

toName of organizationand also activity. These codes are listed on page carried on that involves the sale of goodsprovide the following when filing this 20. or performance of services.return, if it is:

Block F. If the organization is covered by A section 501(c)(7) social cluba group exemption, enter the group A corporation or is incorporated with would report its restaurant and barexemption number.the state, an amendment to the articles of receipts from nonmembers on line

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incorporation along with proof of filing with Block G. Check the box that describes 1, but would report its investment incomethe state is required. your organization. on line 9 and in Schedule G. A trust, an amendment to the trust

Other trust includes IRAs, SEPs, Advance payments. In general,agreement is required along with theSIMPLEs, Roth IRAs, Coverdell IRAs, advanced payments are reported in thetrustee(s) signature.and Archer MSAs. year of receipt. To report income from

An association or an unincorporatedlong-term contracts, see section 460. ForSection 529 organizations check theassociation, an amendment to the articlesspecial rules for reporting certain501(c) corporation or 501(c) trust boxof association, constitution, by-laws oradvanced payments for goods anddepending on whether the organization isother organizing document is requiredlong-term contracts, see Regulationsa corporation or a trust. Also, be sure thealong with signatures of at least twosection 1.451-5. For permissible methodsbox for 529(a) in Block B is checked.officers/members.for reporting advanced payments forIf you check 501(c) corporation,Blocks A through J services by an accrual method

leave line 36 blank. If you check 501(c)organization, see Rev. Proc. 71-21,

Block A. If the organization has changed trust,401(a) trust, or Other trust leave1971-2 C.B. 549.

its address since it last filed a return, lines 35a, b, and c blank.Installment sales. Generally, thecheck Block A. Block H. Describe the primary unrelatedinstallment method cannot be used for

If a change in address occurs after business activity of your organizationdealer dispositions of property. A dealer

the return is filed, useForm 8822, based on unrelated income. Attach adisposition is (a) any disposition of

Change of Address, to notify the schedule if more space is needed.TIP

personal property by a person whoIRS of the new address. Block I. Check the Yes box if your regularly sells or otherwise disposes ofBlock B. Check the box under which the organization is a corporation and either 1 personal property of the same type on theorganization receives its tax exemption. or 2 below applies: installment plan or (b) any disposition of

Qualified pension, profit-sharing, and 1. The corporation is a subsidiary in real property held for sale to customers instock bonus plans should check the 501 an affiliated group (defined in section the ordinary course of the taxpayers



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trade or business. These restrictions on or loss on the disposition of S corporation the return showing how the gain wasusing the installment method do not apply stock by a qualified tax exempt(see S figured.to dispositions of property used or Corporations under the line 5

Line 4bNet Gain or (Loss)produced in a farming business or sales instructions) is taxed as a capital gain orShow gains and losses on other thanof timeshares and residential lots for loss.capital assets on Form 4797. Enter onwhich the organization elects to pay

Capital gains and losses should be this line the net gain or (loss) from Part II,interest under section 453(l)(3).reported by a trust on Schedule D (Form line 18, Form 4797.For sales of timeshares and residential 1041), Capital Gains and Losses, and by

An exempt organization using Formlots reported under the installment a corporation on Schedule D (Form4797 to report ordinary gain on sectionsmethod, the organizations income tax is 1120), Capital Gains and Losses.1245, 1250, 1252, 1254, and 1255increased by the interest payable under

An organization that transfers property will include only depreciation,section 453(l)(3). To report this addition tosecurities it owns for the contractual amortization, or depletion allowed orthe tax, see the instructions for line 42.obligation of the borrower to return allowable in figuring unrelated businessEnter on line 1a (and carry to line 3),identical securities recognizes no gain or taxable income or taxable income of thethe gross profit on collections fromloss. To qualify for this treatment, the organization (or a predecessorinstallment sales for any of the following:organization must lend the securities organization) for a period when it was not

Dealer dispositions of property beforeunder an agreement that requires: exempt.March 1, 1986.

1. The return of identical securities; Dispositions of property used or Line 4cCapital Loss2. The payment of amountsproduced in the trade or business of Deduction for Trustsequivalent to the interest, dividends, andfarming.

If a trust has a net capital loss, it isother distributions that the owner of the Certain dispositions of timeshares andsubject to the limitations of Schedule Dsecurities would normally receive; andresidential lots reported under the(Form 1041). Enter on this line the loss3. The risk of loss or opportunity forinstallment method.figured on Schedule D (Form 1041).gain not be lessened.Attach a schedule showing the

following information for the current and See section 512(a)(5) for details. Line 5Income or (Loss) Fromthe 3 preceding years:

Partnerships and SDebt-financed property disposition.1. Gross sales, CorporationsThe amount of gain or loss to be reported2. Cost of goods sold,on the sale, exchange, or other Combine all partnership income or loss3. Gross profits,disposition of debt-financed property is (determined below) with all S corporation4. Percentage of gross profits to grossthe same percentage as the highest income or loss and enter it on line 5.sales,acquisition indebtedness for the property However, for limitations on losses for5. Amount collected, andfor the 12-month period before the date of certain activities, see Form 6198 and, for6. Gross profit on amount collected.disposition is to the average adjusted trusts, Form 8582, Passive Activity Lossbasis of the property. The percentageNonaccrual experience method. Limitations, or, for corporations, Formmay not be more than 100%. See theAccrual basis taxpayers need not accrue 8810, Corporate Passive Activity Lossinstructions for Schedule E, column 5, tocertain amounts to be received from the and Credit Limitations, and sections 465determine adjusted basis and averageperformance of services that, on the basis and 469.adjusted basis.of their experience, will not be collected

Partnerships(section 448(d)(5)). This provision does If debt-financed property is depreciablenot apply to any amount if interest is If the organization is a partner in aor depletable property, the provisions ofrequired to be paid on the amount or if partnership carrying on an unrelated trade

sections 1245, 1250, 1252, 1254, andthere is any penalty for failure to pay the or business, enter the organizations1255 must be considered first.amount on time. Organizations that fall share (whether or not distributed) of the

Example. On January 1, 2000, anunder this provision should attach a partnerships income or loss from theexempt educational corporation, usingschedule showing total gross receipts, unrelated trade or business.$288,000 of borrowed funds, purchasedamounts not accrued as a result of the Figure the gross income andan office building for $608,000. The onlyapplication of section 448(d)(5), and the deductions of the partnership in the sameadjustment to basis was $29,902 fornet amount accrued. Enter the net way you figure unrelated trade ordepreciation (straight line method underamount on line 1a. business income the organization earnsMACRS over the 39-year recovery periodFor more information and guidelines directly.for nonresidential real property). Theon this nonaccrual experience method, Attachment. Attach a statement to thiscorporation sold the building onsee Temporary Regulations section return showing the organizations share ofDecember 31, 2001, for $640,000. At the1.448-2T. the partnerships gross income from thedate of sale, the adjusted basis of the

unrelated trade or business, and its shareLine 4aCapital Gain Net building was $578,098 ($608,000 of the partnership deductions directly$29,902) and the indebtedness remainedIncomeconnected with the unrelated gross

at $288,000. The adjusted basis of theGenerally, organizations required to file income. Also, see Attachments on pageproperty on the first day of the year ofForm 990-T (except organizations 6 for other information you need todisposition was $593,037. The averagedescribed in sections 501(c)(7), (9), andinclude.adjusted basis is $585,568 (($593,037 +(17)) are not taxed on the net gains from

$578,098) 2). The debt/basisthe sale, exchange, or other disposition of S Corporationspercentage is 49% ($288,000 property. However, net capital gains on For tax years beginning after December$585,568).debt-financed property, capital gains on 31, 1997, qualified tax exemptscan be

cutting timber, and ordinary gains on The taxable gain is $30,332 (49% shareholders in an S corporation withoutsections 1245, 1250, 1252, 1254, and ($640,000 $578,098)). This is a the S corporation losing its status as an S1255 property are taxed. See Form 4797, long-term capital gain. A corporation corporation. Qualified tax exemptsthatSales of Business Property, and its should enter the gain on line 6, Part II, hold stock in an S corporation treat theirinstructions for additional information. Schedule D (Form 1120). A trust should stock interest as an unrelated trade or

Also, any capital gain or loss passed enter the gain on Schedule D (Form business. All items of income, loss, orthrough from an S corporation or any gain 1041). Both should attach a statement to deduction are taken into account in



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figuring unrelated business taxable considered to have received unrelated Therefore, in Part I, column (B) and Partincome. Report on line 4 any gain or loss business income in the amount of the II, the total of deductions for expenseson the disposition of S corporation stock. greater of the actual rental income or the directly connected with income from an

fair rental value of the property for the activity lacking a profit motive is limited toQualified tax exempts. A qualified taxperiod it is used. No deduction is allowed the amount of that income. Generally, anexempt is an organization that isfor interest on the private activity bond. activity lacking a profit motive is one thatdescribed in section 401(a) (qualifiedReport the greater of the actual rent or is not conducted for the purpose ofstock bonus, pension, and profit-sharingthe fair rental value on line 12. Report producing a profit or one that hasplans) or 501(c)(3) and exempt from taxallowable deductions in Part II. See consistently produced losses when bothunder section 501(a).section 150(b)(3) for more information. direct and indirect expenses are taken

Exception. Employer stock ownership Passive foreign investment company into account.plans (ESOPs) do not follow these S (PFIC) shareholders. If your organization

corporation rules if the S corporation Transactions Between Relatedis a direct or indirect shareholder of astock is an employer security as defined PFIC within the meaning of section 1296, Taxpayersin section 409(l). it may have income tax consequences Generally, an accrual basis taxpayer may

under section 1291 on the disposition ofAttachment. Attach a statement to this only deduct business expenses andthe PFIC stock or on receipt of an excessreturn showing the qualified tax exempts interest owed to a related party in thedistribution from the PFIC, described inshare of all items of income, loss, or year the payment is included in thesection 1291(a). Your organization maydeduction. Show capital gains and losses income of the related party. See sectionshave current income under section 1293 ifseparately and include them on line 4a. 163(e)(3), 163(j), and 267 for limitationsthe PFIC is a qualified electing fundCombine the income, loss, and on deductions for unpaid interest and(QEF) with respect to the organization.deductions (except for the capital gains expenses.

Include on line 12 the portion of anand losses) on the statement. If you holdexcess distribution or section 1293 Preference Itemsstock in more than one S corporation,inclusion that is taxable as unrelatedtotal the combined amounts. Also, see Corporations may be required to adjustbusiness taxable income. See FormAttachments on page 6 for other deductions for depletion of iron ore and8621, Return by a Shareholder of ainformation you need to include. coal, intangible drilling and exploration

Passive Foreign Investment Company or and development costs, and theLine 12Other Income Qualified Electing Fund, for more amortizable basis of pollution controlinformation on reporting excessEnter on line 12 any item of unrelated facilities. See section 291 to determinedistributions and current incomebusiness income that is not reportable the amount of the adjustment.inclusions.elsewhere on the return. Include

recoveries of bad debts deducted in See the instructions for Lines 35c and Section 263A Uniformearlier years under the specific charge-off 36 in Part III for reporting the deferred tax Capitalization Rulesmethod. Attach a separate schedule of amount that may be owed by your These rules require organizations toany items of other income to your return. organization with respect to an excess capitalize or include as inventory cost Organizations described in section distribution. certain costs incurred in connection with:501(c)(19). Enter the net income from

The production of real property andinsurance business that was not properly Part IIDeductions Not tangible personal property held inset aside. These organizations may set

inventory or held for sale in the ordinaryTaken Elsewhereaside income from payments received forcourse of business.

If the amount on Part I, line 13, columnlife, sick, accident, or health insurance for Real property or personal property held

(A), is $10,000 or less, you do not have tomembers of the organization or their

in inventory (tangible and intangible)complete lines 14 through 28 of Part II.dependents: acquired for resale.However, you must complete lines 291. To provide for the payment of The production of real property andthrough 34 of Part II.insurance benefits; or tangible personal property produced byDirectly connected expenses. Only2. For a purpose specified in section the organization for use in its trade orexpenses directly connected with170(c)(4) (religious, charitable, scientific, business or in an activity engaged in forunrelated trade or business incomeliterary, educational, etc.); or profit.(except contributions) may be deducted3. For administrative costs directly Tangible personal property producedon these lines (see Directly connectedconnected with benefits described in 1 by an organization includes a film, soundexpenses on page 3). Contributions mayand 2 above. recording, videotape, book, or similarbe deducted, whether or not directlyAmounts set aside and used for property.connected. Do not separately include inpurposes other than those in 1, 2, or 3

Indirect expenses. OrganizationsPart II any expenses that are reported inabove, must be included in unrelatedsubject to the section 263A uniformSchedules A through J, other than excessbusiness taxable income for the tax yearcapitalization rules are required toexempt expenses entered on line 26 andif they were previously excluded fromcapitalize direct costs and an allocableexcess readership costs entered on linetaxable income.

part of most indirect costs (including27. For example, officers compensationAny amount spent for a purpose taxes) that benefit the assets produced orallocable to advertising income isdescribed in section 170(c)(4) is firstacquired for resale or are incurred byreported on Schedule J only, and shouldconsidered paid from funds earned by thereason of the performance of productionnot be included on Schedule K or line 14organization from insurance activities ifor resale activities.of Part II.the income is not used for the insurance

activities. For inventory, some of the indirectLimitations on DeductionsExpenditures for lobbying are not expenses that must be capitalized are:The following items discuss certain areas

considered section 170(c)(4) expenses. Administration expenses,in which the amount of the deduction may Income from property financed with Taxes,to some extent be limited.qualified 501(c)(3) bonds. If any part of Depreciation,

Activities Lacking a Profit Motivethe property is used in a trade or business Insurance,of any person other than a section If income is attributable to an activity Compensation paid to officers501(c)(3) organization or a governmental lacking a profit motive, a loss from the attributable to services,unit, your section 501(c)(3) organization is activity cannot be claimed on Form 990-T. Rework labor, and



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Contributions to pension, stock bonus, the amount otherwise allowable for meals months. See section 195 and Regulationsand certain profit-sharing, annuity, or and entertainment expenses paid or section 1.195-1.deferred compensation plans. incurred in its trade or business. In

Line 16Repairs andRegulations section 1.263A-1(e)(3) addition (subject to exceptions underMaintenancespecifies other indirect costs that relate to section 274(k)(2)):Enter the cost of incidental repairs andproduction or resale activities that must Meals must not be lavish ormaintenance not claimed elsewhere onbe capitalized and those that may be extravagant;the return, such as labor and supplies,currently deductible. A bona fide business discussion mustthat do not add to the value oroccur during, immediately before, orInterest expense. Interest expense paidappreciably prolong the life of theimmediately after the meal; andor incurred during the production period ofproperty. An employee of the organization mustdesignated property must be capitalized

be present at the meal.

and is governed by special rules. For Line 17Bad Debtsmore details, see Regulations section Membership dues. The organization Enter the total receivables from unrelated1.263A-8 through 1.263A-15. may deduct amounts paid or incurred for business activities that were previously

membership dues in civic or publicWhen are section 263A capitalized included in taxable income and thatservice organizations, professionalcosts deductible? The costs required to became worthless in whole or in partorganizations (such as bar and medicalbe capitalized under section 263A are not during the tax year.associations), business leagues, tradedeductible until the property (to which the

Line 18Interestassociations, chambers of commerce,costs relate) is sold, used, or otherwiseboards of trade, and real estate boards. Attach a separate schedule listing thedisposed of by the organization.However, no deduction is allowed if a interest being claimed on this line.Exceptions. Section 263A does not principal purpose of the organization is to

Interest allocation. If the proceeds ofapply to: entertain, or provide entertainmenta loan were used for more than one Personal property acquired for resale if facilities for members or their guests. Inpurpose (e.g., to purchase a portfoliothe organizations average annual gross addition, organizations may not deductinvestment and to acquire an interest in areceipts for the 3 prior tax years were $10 membership dues in any club organizedpassive activity), an interest allocationmillion or less. for business, pleasure, recreation, ormust be made. See Temporary

Timber. other social purpose. This includes Regulations section 1.163-8T for the Most property produced under country clubs, golf and athletic clubs,interest allocation rules.long-term contract. airline and hotel clubs, and clubs Tax-exempt interest. Do not include Certain property produced in a farming operated to provide meals underinterest on indebtedness incurred orbusiness. conditions favorable to businesscontinued to purchase or carry Research and experimental costs discussion.obligations, on which the interest incomeunder section 174.

Entertainment facilities. The is totally exempt from income tax. For Intangible drilling costs for oil, gas, andorganization cannot deduct an expense exceptions, see section 265(b).geothermal property.paid or incurred for a facility (such as a Prepaid interest. Generally, a cash Mining exploration and developmentyacht or hunting lodge) used for an basis taxpayer cannot deduct prepaidcosts.activity usually considered entertainment, interest allocable to years following the Inventory of an organization thatamusement, or recreation. current tax year. For example, in 2001 aaccounts for inventories in the same

cash basis calendar year taxpayermanner as materials and supplies that are The organization may be able toprepaid interest on a loan. The taxpayernot incidental. See Schedule ACost of deduct otherwise nondeductiblecan deduct only that part of the prepaidGoods Sold on page 16 for details. travel, meals, and entertainment

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interest that was for the use of the loanexpenses if the amounts are treated asAdditional information. For more before January 1, 2002.compensation and reported on Form W-2details on the uniform capitalization rules, Straddle interest. Generally, thefor an employee or Form 1099-MISC forsee Regulations sections 1.263A-1interest and carrying charges on straddlesan independent contractor.through 1.263A-3.cannot be deducted and must becapitalized. See section 263(g).Certain Expenses For WhichTravel, Meals, and Entertainment Original issue discount. See sectionCredits Are AllowableSubject to limitations and restrictions163(e)(5) for special rules for thediscussed below, an organization can For each of the credits listed below, thedisqualified portion of original issuededuct ordinary and necessary travel, organization must reduce the otherwisediscount on a high yield discountmeals, and entertainment expenses paid allowable deductions for expenses usedobligation.or incurred in its trade or business. Also, to figure the credit by the amount of the Related party interest. Certain interestspecial rules apply to deductions for gifts, current year credit:paid or accrued by the organizationskybox rentals, luxury water travel, 1. The credit for increasing research (directly or indirectly) to a related personconvention expenses, and entertainment activities, may be limited if no tax is imposed ontickets. See section 274 and Pub. 463 for 2. The enhanced oil recovery credit, such interest. See section 163(j) for more

more details. 3. The disabled access credit, details.4. The employer credit for socialTravel. The organization cannot deduct

Interest allocable to the productionsecurity and Medicare taxes paid ontravel expenses of any individual of designated property. Do not deductcertain employee tips, andaccompanying an organizations officer or interest on debt allocable to the

5. The orphan drug credit.employee, including a spouse or production of designated property.dependent of the officer or employee, Interest that is allocable to such propertyIf the organization has any of theseunless: produced by an organization for its owncredits, be sure to figure each current That individual is an employee of the use or for sale must be capitalized. Anyear credit before figuring the deductionorganization and organization must also capitalize anyfor expenses on which the credit is based. His or her travel is for a bona fide interest on debt allocable to an assetbusiness purpose and would otherwise be Business Startup Expenses used to produce the above property. Seedeductible by that individual. Business startup expenses must be section 263A(f) and Regulations sectionsMeals and entertainment. Generally, capitalized unless an election is made to 1.263A-8 through 1.263A-15 forthe organization can deduct only 50% of amortize them over a period of 60 definitions and more information.



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Interest on below-market loans. See If a charitable contribution deduction is 990-T, or the date Form 990-T is fi led.section 7872 for special rules regarding taken for property sold to a charitable However, see section 170(f)(8) and thethe deductibili ty of foregone interest on organization, the adjusted basis for related regulations for exceptions to thiscertain below-market-rate loans. determining gain from the sale is an rule. Do not attach the written

amount that is in the same ratio to the acknowledgment to Form 990-T, but keepLine 19Taxes and Licenses adjusted basis as the amount realized is it with the organizations records.Enter taxes and license fees paid or to the FMV of the property.

The written acknowledgment mustaccrued during the year, but do not Corporations. The total amount claimed show:include the following: may not be more than 10% of unrelated1. The amount of cash contributed, Federal income taxes. business taxable income figured without2. A description of any property Foreign or U.S. possession income regard to the deduction for charitable

contributed,taxes if a tax credit is claimed. Note: For contributions.3. Whether the charitable organizationspecial rules on possession income Charitable contributions over the 10% provided any goods or services to thetaxes, see the Instructions forForm 5735,

limitation may not be deducted for the tax donor, andPossessions Corporation Tax Credityear, but may be carried over to the next 4. A description and a good-faith(Under Sections 936 and 30A).5 tax years. estimate of the value of any goods and Taxes not imposed on your

In figuring the charitable contributions services provided to the donor inorganization.deduction, if the corporation has an NOL exchange for the donation, unless: Taxes, including state or local salescarryover to the tax year, the 10% limit istaxes, paid or incurred in connection with a. The goods and services haveapplied using the taxable income afteran acquisition or disposition of property insubstantial value,taking into account any deduction for the(these taxes must be treated as part of b. A statement is included that theseNOL.the cost of the acquired property or, in the goods and services consist solely of

case of a disposition, as a reduction in the intangible religious benefits, orTo figure the amount of any remainingamount realized on the disposition). c. Certain types of benefits areNOL carryover to later years, taxable Taxes assessed against local benefits received that are customarily provided inincome must be modified. See sectionthat increase the value of the property exchange for membership payments of172(b). To the extent charitableassessed (such as for paving, etc.).

$75 or less a year.contributions are used to reduce taxable Taxes deducted elsewhere on the income for this purpose and increase aGenerally, if your organization makesreturn, such as those reflected in cost of net operating loss carryover, a

a charitable contribution of more than $75good sold. contributions carryover is not allowed.and receives something in return (a quidSee section 164(d) for apportionment See section 170(d)(2)(B).pro quo contribution), the amount of theof taxes on real property between the Corporations on the accrual basis may contribution deductible for Federal incomebuyer and seller. elect to deduct contributions paid by the tax purposes is limited to the amount by

15th day of the 3rd month after the end ofLine 20Charitable which the contribution exceeds the valuethe tax year if the contributions are of the goods or services received. TheContributionsauthorized by the board of directors charitable organization that solicits orEnter contributions or gifts actually paid to during the tax year. Attach a declaration receives the contribution must so informanother organization within the tax year to to the return, signed by an officer, stating you of this by written statement and mustor for the use of charitable and that the resolution authorizing the provide your organization with agovernmental organizations described in contributions was adopted by the board of good-faith estimate of the value of goodssection 170(c). Also, enter any unused directors during the tax year. Also, attach or services given in return for thecontributions carried over from earlier a copy of the resolution. contribution.

years. The deduction for contributions will Trusts. In general:be allowed whether or not directly An organization must keep records,1. For contributions to organizationsconnected with the carrying on of a trade required by the regulations under section

described in section 170(b)(1)(A), theor business. 170, for all its charitable contributions.amount claimed may not be more thanContributions of property other than Contributions to organizations50% of the unrelated business taxablecash. If a contribution is in property other conducting lobbying activities.income figured without this deduction;than cash and the deduction claimed for Charitable contributions made to anandthe property exceeds $500, attach a organization conducting lobbying2. For contributions to otherschedule describing the kind of property activities are not deductible if:organizations, the amount claimed maycontributed and the method used in

The lobbying activities relate to mattersnot be more than the smaller of:determining its FMV. If the total claimed of direct financial interest to the donorsa. 30% of unrelated business taxablededuction for all property contributed was trade or business, and

income figured without this deduction; ormore than $5,000, attach Form 8283, The principal purpose of the

b. The amount by which 50% of theNoncash Charitable Contributions, to the contribution was to avoid Federal incomeunrelated business taxable income isreturn. tax by obtaining a deduction for activitiesmore than the contributions allowed in 1

If the organization made a qualified that would have been nondeductibleabove.conservation contribution under section under the lobbying expense rules if170(h), also include the FMV of the conducted directly by the donor. SeeContributions not allowable inunderlying property before and after the section 170(f)(9) for more details.whole or in part because of thedonation, the type of legal interest limitations may not be deducted Contributions of computer technology

TIP

contributed, and describe the as a business expense, but may be and equipment to schools. Aconservation purpose furthered by the carried over to the next 5 tax years. corporation may take an increaseddonation.Substantiation requirements. deduction under section 170(e)(6) for

If a contribution carryover is included, Generally, no deduction is allowed for any qualified contributions of computershow the amount and how it was contribution of $250 or more, unless the technology or equipment for educationaldetermined. organization gets a written purposes. A contribution is a qualified

For special rules for certain acknowledgment from the charitable contribution if:contributions of ordinary income and organization by the earlier of the due date It is made to an eligible donee (seecapital gain property, see section 170(e). (including extensions) for fi ling Form below):



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Substantially all of the donee propertys year. Section 6652(e) imposes a penalty gross income and deductions of all itsuse is: for late filing of these forms. In addition, units that are not separate legal entities.

there is a penalty for overstating the These local units cannot file separate1. Related to the purpose or functionpension plan deduction. See section returns because they are not separatelyof the donee;6662(f). incorporated. Local units that are2. For use within the United States;

separately incorporated must file theirand Line 25Employee Benefit own returns and cannot be included with3. For educational purposes. Programs any other entity except for a title holding The contribution is made not later thanEnter the amount of contributions to company. See the instructions under3 years after the date the taxpayeremployee benefit programs (e.g., Consolidated Returns on page 5.acquired or substantially completed theinsurance, health and welfare programs)construction of the property; For details on the specific deduction,that are not an incidental part of a The original use of the property is by see section 512(b)(12) and the relateddeferred compensation plan included onthe donor or the donee; regulations.line 24. The property is not transferred by the

donee for money, services, or other Part IIITax ComputationLine 28Other Deductionsproperty, except for shipping, transfer,

Enter on this line the deduction taken forand installation costs; Lines 35a and 35bamortization (see Form 4562) as well as

The property fits productively into theCorporate members of a controlledother authorized deductions for which nodonees education plan; andgroup, as defined in section 1563, mustspace is provided on the return. Attach a

The property meets standards, to becheck the box on line 35 and completeseparate schedule listing the deductionsprescribed by regulations, to assure itlines 35a and 35b.claimed on this line. Deduct only itemsmeets minimum functionality and

directly connected with the unrelated Members of a controlled group aresuitability for educational purposes.trade or business for which income is entitled to one $50,000, one $25,000, and

Eligible donee. The term eligible reported in Part I. one $9,925,000 taxable income bracketdonee means: amount (in that order) on line 35a.Do not deduct fines or penalties paid An educational organization that

to a government for violating any law. When a controlled group adopts ornormally maintains a regular faculty and

later amends an apportionment plan,curriculum and has a regularly enrolled Line 31Net Operating Loss each member must attach to its tax returnbody of pupils in attendance at the place (NOL) Deduction a copy of its consent to this plan. Thewhere its educational activities areThe NOL deduction is the total of the net copy (or an attached statement) mustregularly conducted,operating loss carryovers and carrybacks show the part of the amount in each

A section 501(c)(3) entity organizedthat can be deducted in the tax year. See taxable income bracket apportioned toprimarily for purposes of supportingsection 172(a). that member. See Regulations sectionelementary and secondary education, or

1.1561-3(b) for other requirements andTo be deductible, an NOL must have A public library (as described in sectionfor the time and manner of making thebeen incurred in an unrelated trade or170(e)(6)(B)(i)(lll)).consent.business activity. The amount of an NOL

Special rules. Qualified computercarryback or carryover is determined Equal apportionment plan. If no

contributions may also include:under section 172. See Regulations apportionment plan is adopted, members

Contributions of computer technologysection 1.512(b)-1(e). For more of a controlled group must divide the

or equipment to private foundations (seeinformation about NOLs, see Pub. 536, amount in each taxable income bracket

section 170(e)(6)(C)) andNet Operating Losses. equally among themselves. For example,

Contributions of computers reacquiredControlled Group AB consists of

by the computer manufacturer (see Line 33Specific Deduction Corporation A and Corporation B. Theysection 170(e)(6)(D)). A specific deduction of $1,000 is allowed do not elect an apportionment plan.except for computing the net operating Therefore, Corporation A and CorporationLine 21Depreciationloss and the net operating loss deduction B are each entitled to $25,000 (one-halfBesides depreciation, include on line 21 under section 172. of $50,000) in the $50,000 taxablethe part of the cost, under section 179,

income bracket on line 35a(1), $12,500Only one specific deduction may bethat the organization elected to expense(one-half of $25,000) in the $25,000taken, regardless of the number offor certain tangible property placed intaxable income bracket on line 35a(2),unrelated businesses conducted.service during tax year 2001 or carriedand $4,962,500 (one-half of $9,925,000)However, a diocese, province of aover from 2000. See Form 4562,in the $9,925,000 taxable income bracketreligious order, or convention orDepreciation and Amortization, and itson line 35a(3).association of churches is allowed oneinstructions.

specific deduction for each parish, Unequal apportionment plan.Line 23Depletion individual church, district, or other local Members of a controlled group may elect

unit that regularly conducts an unrelated an unequal apportionment plan and divideSee sections 613 and 613A fortrade or business. This applies only to the taxable income brackets as they want.percentage depletion rates for natural

those parishes, districts, or other local There is no need for consistency amongdeposits. Attach Form T, Forest Activitiesunits that are not separate legal entities, taxable income brackets. Any member ofSchedules, if a deduction is taken forbut are components of a larger entity the controlled group may be entitled to all,depletion of timber.(diocese, province, convention, or some, or none of the taxable income

Line 24Contributions to association). Each specific deduction will bracket. However, the total amount for allbe the smaller of $1,000 or the grossDeferred Compensation Plans members of the controlled group cannotincome from any unrelated trade or be more than the total amount in eachEmployers who maintain pension,business the local unit conducts. If you taxable income bracket.profit-sharing, or other funded deferredclaim a total specific deduction larger thancompensation plans are generally Additional 5% tax and additional 3%$1,000, attach a schedule showing howrequired to file Form 5500. This tax. Members of a controlled group areyou figured the amount.requirement applies whether or not the treated as one corporation to figure the

plan is qualif ied under the Internal The diocese, province of a religious applicability of the addit ional 5% tax thatRevenue Code and whether or not a order, or convention or association of must be paid by corporations with taxablededuction is claimed for the current tax churches must file a return reporting the income over $100,000 and the additional



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3% tax that must be paid by corporations 37 and attach a schedule showing theTax Computation Worksheet forwith taxable income over $15 million. If computation.Members of a Controlled Groupeither additional tax applies, each (Keep for your records)

Exempt organizations, except sectionmember of the controlled group will payEach member of a controlled group must compute the tax using the 501(c)(3) and certain otherthat tax based on the part of the amount computation below:

organizations, must include certainthat is used in each taxable income1. Enter unrelated business taxable income (line information regarding lobbyingbracket to reduce that members tax. See 34, page 1, Form 990-T) . . . . . . . . . . . . expenditures on Form 990. In addition,section 1561(a). Each member must 2. Enter line 1 or corporations share of the organizations may have to provideenter its share of the additional 5% tax on $50,000 taxable income bracket, whichever is

notices to members regarding their shareless . . . . . . . . . . . . . . . . . . . . . . . .line 35b(1) and its share of the additionalof dues to which the expenditures are3. Subtract line 2 from line 1 . . . . . . . . . . . .3% tax on line 35b(2) and attach to its taxallocable. See Form 990 instructions and4. Enter line 3 or corporations share of thereturn a schedule that shows the taxable

$25,000 taxable income bracket, whichever is Rev. Proc. 95-35, 1995-2 C.B. 391 andincome of the entire group, as well as less . . . . . . . . . . . . . . . . . . . . . . . . Rev. Proc. 95-35A, 1995-2 C.B. 392 forhow its share of the additional tax was5. Subtract line 4 from line 3 . . . . . . . . . . . . exceptions and other details.figured.6. Enter line 5 or corporations share of the

$9,925,000 taxable income bracket, If the organization elects not to provideLines 35c and 36 whichever is less . . . . . . . . . . . . . . . . the notices described above, it must pay7. Subtract line 6 from line 5 . . . . . . . . . . . .Deferred tax amount under section the proxy tax described in section8. Enter 15% of line 2 . . . . . . . . . . . . . . .1291. If your organization has an excess 6033(e)(2). If the organization does not9. Enter 25% of line 4 . . . . . . . . . . . . . . .distribution from a passive foreign include the entire amount of allocable

10. Enter 34% of line 6 . . . . . . . . . . . . . . .investment company (PFIC) that is dues in the notices, it may have to pay11. Enter 35% of line 7 . . . . . . . . . . . . . . .taxable as unrelated business taxable the proxy tax. This tax is not applicable12. If the taxable income of the controll

us internal revenue service: i990t--2001

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